December 13, 2008

Utah's New REPC Section 8. Buyer's Due Diligence

REPC Section 8. Buyer's Due Diligence

New Section 8. Discussion....

All the Buyer's contingencies have been re-located to the new Section 8. These are the due diligence items, such as the right to cancel, approval of seller disclosures, tests of the property and condition of the property, appraisal condition, financing considerations and "subject-to's" of the old REPC.

Additionally, the new REPC uses drop dead or hard-coded dates rather than "slippery dates" e.g. provisional dates. The drop dead dates streamline the item or process to simply be completed by the date. Period. This is in contrast to the old REPC where dates were provisional, such as “no later than three calendar days after expiration of the ....... (Condition).

The new REPC's hard-coded or drop dead dates now govern the completion of Seller Disclosure, Buyer's Due Diligence, and Financing and Appraisal due dates.

Discussion ...

8.1a Due Diligence Condition.

This section presents a list of items about the property to highlight and remind the Buyer of factors affecting the property such as HOA conditions, flood insurance, square footage, etc. and to especially alert the Buyer to situations that might not be initially considered, or could be overlooked, including sex offenders that might be living in the neighborhood. Utah doesn't presently have a law that requires convicted sex offenders to inform the neighbors.

This list of items pertinent to the sale is public knowledge. The burden of Due Diligence is on the Buyer, rather than upon the Seller or the real estate agents.

A new sentence has also been added: "Buyer agrees to pay for any damage to the Property resulting from any such inspections or tests during the Due Diligence."

New REPC actual text: ----------------------------------------

8. BUYER’S CONDITIONS OF PURCHASE.

8.1 DUE DILIGENCE CONDITION. Buyer's obligation to purchase the Property: [ ] IS [ ] IS NOT conditioned upon Buyer’s Due Diligence as defined in this Section 8.1(a) below. This condition is referred to as the “Due Diligence Condition.” If checked in the affirmative, Sections 8.1(a) through 8.1(c) apply; otherwise they do not.

(a) Due Diligence Items. Buyer’s Due Diligence shall consist of Buyer’s review and approval of the contents of the Seller Disclosures referenced in Section 7, and any other tests, evaluations and verifications of the Property deemed necessary or appropriate by Buyer, such as: the physical condition of the Property; the existence of any hazardous substances, environmental issues or geologic conditions; the square footage or acreage of the land and/or improvements; the condition of the roof, walls, and foundation; the condition of the plumbing, electrical, mechanical, heating and air conditioning systems and fixtures; the condition of all appliances; the costs and availability of homeowners’ insurance and flood insurance, if applicable; water source, availability and quality; the location of property lines; regulatory use restrictions or violations; fees for services such as HOA dues, municipal services, and utility costs; convicted sex offenders residing in proximity to the Property; and any other matters deemed material to Buyer in making a decision to purchase the Property. Unless otherwise provided in the REPC, all of Buyer’s Due Diligence shall be paid for by Buyer and shall be conducted by individuals or entities of Buyer's choice. Seller agrees to cooperate with Buyer’s Due Diligence. Buyer agrees to pay for any damage to the Property resulting from any such inspections or tests during the Due Diligence.

(b) Buyer’s Right to Cancel or Resolve Objections. If Buyer determines, in Buyer’s sole discretion, that the results of the Due Diligence are unacceptable, Buyer may either: (i) no later than the Due Diligence Deadline referenced in Section 24(b), cancel the REPC by providing written notice to Seller, whereupon the Earnest Money Deposit shall be released to Buyer without the requirement of further written authorization from Seller; or (ii) no later than the Due Diligence Deadline referenced in Section 24(b), resolve in writing with Seller any objections Buyer has arising from Buyer’s Due Diligence.

(c) Failure to Cancel or Resolve Objections. If Buyer fails to cancel the REPC or fails to resolve in writing any objections Buyer has arising from Buyer’s Due Diligence, as provided in Section 8.1(b), Buyer shall be deemed to have waived the Due Diligence Condition.

Appraisal: The old REPC stated...once the Buyer received the appraisal, the Buyer had three days to get the appraisal to the Seller and to cancel based upon the appraisal if desired. The Buyer had to cancel within three days -- a "slippery" date discussed earlier.

The new REPC says that by the Financing and Appraisal deadline date, if the Buyer wishes to cancel based upon the appraisal, then the Buyer will do so in writing, providing a copy of the appraisal, and by the Financing and Appraisal drop dead date. Period. The date is hard-coded.

Additionally under this new provision the broker may release the earnest money to the Buyer without the Seller's signature.

New REPC actual text: ------------------------------

8.2 APPRAISAL CONDITION. Buyer's obligation to purchase the Property: [ ] IS [ ] IS NOT conditioned upon the Property appraising for not less than the Purchase Price. This condition is referred to as the “Appraisal Condition.” If checked in the affirmative, Sections 8.2(a) and 8.2(b) apply; otherwise they do not.

(a) Buyer’s Right to Cancel. If after completion of an appraisal by a licensed appraiser, Buyer receives written notice from the Lender or the appraiser that the Property has appraised for less than the Purchase Price (a “Notice of Appraised Value”), Buyer may cancel the REPC by providing written notice to Seller (with a copy of the Notice of Appraised Value) no later than the Financing & Appraisal Deadline referenced in Section 24(c); whereupon the Earnest Money Deposit shall be released to Buyer without the requirement of further written authorization from Seller.

(b) Failure to Cancel. If the REPC is not cancelled as provided in this section 8.2, Buyer shall be deemed to have waived the Appraisal Condition.

In new Section 8.3.a Buyer's Right to Cancel Before the Hard-Coded Date; a significant change in the new REPC gives the Buyer some new latitude. The Buyer can cancel before the Financing and Appraisal deadline if the Buyer is not satisfied with the financing provisions and in the Buyer's sole discretion. Period. This means the Buyer can cancel if he or she simply does not like the terms of the financing.

The Loan Denial Letter in the old REPC is gone. But again, Buyer’s cancellation must occur in writing before the hard-coded Financing and Appraisal Deadline.

With cancellation under this provision the Broker can release the earnest money to the Buyer without the Seller's signature.

In new Section 8.3.b Buyer's Right to Cancel After the Hard-Coded Date; the REPC can be cancelled by Seller or Buyer after the Financing and Appraisal hard-coded date if the Buyer's financing fails. Seller and Buyer agree to liquidated damages in the amount of the Earnest Money deposit, and the broker may release the Earnest Money deposit to the Seller without the Buyer's signature.

New REPC actual text: --------------------------------

8.3 FINANCING CONDITION. Buyer’s obligation to purchase the property: [ ] IS [ ] IS NOT conditioned upon Buyer obtaining the Loan referenced in Section 2(b). This condition is referred to as the “Financing Condition.” If checked in the affirmative, Sections 8.3(a) and 8.3(b) apply; otherwise they do not. If the Financing Condition applies, Buyer agrees to work diligently and in good faith to obtain the Loan.

(a) Buyer’s Right to Cancel Before the Financing & Appraisal Deadline. If Buyer, in Buyer’s sole discretion, is not satisfied with the terms and conditions of the Loan, Buyer may cancel the REPC by providing written notice to Seller no later than the Financing & Appraisal Deadline referenced in Section 24(c); whereupon the Earnest Money Deposit shall be released to Buyer without the requirement of further written authorization from Seller.

(b) Buyer’s Right to Cancel After the Financing & Appraisal Deadline. If after expiration of the Financing & Appraisal Deadline referenced in Section 24(c), Buyer fails to obtain the Loan, meaning that the proceeds of the Loan have not been delivered by the Lender to Seller or to the escrow/closing office as required under Section 3.5 of the REPC, then Buyer or Seller may cancel the REPC by providing written notice to the other party; whereupon the Earnest Money Deposit, or Deposits, if applicable (see Section 8.4 below), shall be released to Seller without the requirement of further written authorization from the Buyer. In the event of such cancellation, Seller agrees to accept as Seller’s exclusive remedy, the Earnest Money Deposit, or Deposits, if applicable, as liquidated damages. Buyer and Seller agree that liquidated damages would be difficult and impractical to calculate, and the Earnest Money Deposit, or Deposits, if applicable, is a fair and reasonable estimate of Seller’s damages in the event Buyer fails to obtain the Loan.

Where additional earnest money may be a consideration and needs to be addressed, this new provision is now available.

New REPC actual text: ------------------------------------

8.4 ADDITIONAL EARNEST MONEY DEPOSIT. If the REPC has not been previously canceled by Buyer as provided in Sections 8.1, 8.2 or 8.3(a), then no later than the Due Diligence Deadline referenced in Section 24(b), or the Financing & Appraisal Deadline referenced in Section 24(c), whichever is later, Buyer: [ ] WILL [ ] WILL NOT deliver to the Buyer’s Brokerage, an Additional Earnest Money Deposit in the amount of $_________________. The Earnest Money Deposit and the Additional Earnest Money Deposit, if applicable, are sometimes referred to herein as the “Deposits”. The Earnest Money Deposit, or Deposits, if applicable, shall be credited toward the Purchase Price at Closing.

I’m remarking on the new REPC changes as I see them. This isn't legal advice.